1. What is the difference between absolute and comparative advantage? Why would Lexi Thompson, who is better than you at both golf and laundry, still hire you to do her wash?

2. If the United States has a comparative advantage in the production of strawberries compared to Iceland, how might trade affect the prices of strawberries in the two countries?

3. Who are the beneficiaries from a large U.S. tariff on French and German wines? Who are the losers?

4. Why does a quota generate a larger loss to the importing country than a tariff that restricts imports to the same quantity?

5. What is the difference between an infant industry and a key industry? Why do producers in both industries desire protection against foreign imports?

6. How could free trade between the United States and China potentially lead to more jobs in the United States?

7. Some American politicians claim that China’s trade policies are unfair to the United States, and that a large tax (tariffs) should be placed on Chinese imports to protect American workers and industries. Why might such a policy sound better than it actually is in practice? What are the dangers of imposing large taxes on Chinese imports?

8. Expanding trade in general benefits all countries, or they would not willingly engage in trade. But we also know that consumers and society often gain while particular industries or workers lose. Because society and consumers gain, how might the government compensate the few losers for their loss?

9. Some activist groups are calling for “fair trade laws” by which other countries would be required to meet or approach our environmental standards and provide wage and working conditions approaching those of developed nations in order to be able to trade with us. Is this just another form of rent seeking by industries and unions for protection from overseas competition?

10. Why is there free trade between states in the United States but not necessarily between countries?

11. Remittances from developed countries amount to over $500 billion each year. These funds are sent to their home countries by migrants in developed nations. Is this similar to the gains from trade discussed in this chapter, or are these workers just taking jobs that workers in developed countries would be paid more to do in the absence of the migrants?

12. Suppose Brazil developed a secret process that effectively quadrupled its output of coffee from its coffee plantations. This secret process enabled it to significantly undercut the prices of U.S. domestic producers. Would domestic producers receive a sympathetic ear to calls for protection from Brazil’s lower cost coffee? How is this case different from that of protection against cheap foreign labor?

13. Much of the world’s trade in goods occurs by cargo ship. Sometimes, the routes taken seem bizarre. For example, a container of goods being shipped from Shanghai to Hawaii might travel over 7,000 miles to Long Beach and then backtrack nearly 3,000 miles to Hawaii, as opposed to just traveling about 4,500 miles directly. Why would cargo companies use circuitous (and seemingly inefficient) routes to reach their destinations?

14. Since the Civil War, Hawaii had been a major producer and exporter of sugarcane. About the time Hawaii became a U.S. state in 1959, the sugar industry had already started its decline, and in 2015, the last sugar plantation in Hawaii closed. Explain how the sugar industry in Hawaii was affected by reductions in tariffs, world competition, and the opportunity costs of production relative to other states. Why does sugar continue to be produced in Florida and Louisiana but not Hawaii?

15. This figure shows the production possibilities frontiers (PPFs) for Italy and India for their domestic production of olives and tea. Without trade, assume that each is consuming olives and tea at point a.

446

16. The following figure shows the annual domestic demand and supply for 16-GB flash drives.

17. According to By the Numbers, approximately when was the last time the United States had a trade surplus? As a percentage of GDP, what was the highest trade surplus the United States has achieved in the last 50 years? What was the highest trade deficit the United States has incurred in the last 50 years?

18. According to By the Numbers, most of the developed countries (Canada, Australia, the United States, Switzerland, and Hong Kong) have relatively low tariff barriers, while much of the developing world still has high tariffs on imports. What reasons might account for why these countries continue to have high tariffs?